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A Tale of Two Markets, but SPX, NDX have improved near-term

June 21, 2018
Mark Newton CMT, Newton Advisors, LLC- Contact: info@newtonadvisor.com

S&P 500 ETF Trust SPDR (SPY)-  
274.95, 274.32,  272.57, 270.94         Support
276.70, 277.19, 277.82, 279.43          Resistance


LINK TO TECHNICAL WEBINAR from last Thursday- https://stme.in/L2s6RGiWrJ

 

SPX - (1-2 Days)- Bullish-Holding 2745 and closing up well off its lows in the last 3 of 4 trading days while having not violated the trendline support from early May seems positive in the short run.  Now after four of five down days, SPX rose above Tuesday's close.  Use minor weakness Thursday to buy down to 2765 with expectations of a push back higher to 2775.    

SX5E- EuroSTOXX 50Bearish- Leaning bearish here, but a decided lack of price movement after last Friday's decline and the last three days have fit inside this range.  Over 3540 would lead up to 3640-50, while under 3391 would be more negative leading to 3300 or lower.  Yet, SX5E remains in far worse shape than SPX, so of the two, its better to be short Europe and long US.  

HSCEI- Bearish near-term , and while some minor stabilization happened Wednesday, the break of lows since February is bearish and could lead down to 11250-11300. Any move back up above 11841 would be respected, but unlikely in the short run.   

Trading Longs:  ALXN, CVS, HCA, MRK, ZTS, PRI, TCBI, V, BJRI, FDC, GRUB, ITT, EMN, PX, EL, GILD, NTR, VEEV

Trading Shorts:  XLI, CAT, BA, MMM, FOSL, PG, MO, PM, SIVB, PSA, LRCX, VNQ, AVB,  HPT, BXP, PCG, EIX, WEC, PNW, GGP, PCAR, ITW, BLL, SWK, CMI


TECHNICAL THOUGHTS


ACTION PLAN-  

Long XLV with targets 86.85
Long KRE with targets 66.50

Short XLI with targets 70.85
Short ITA with targets at 195
Long UNG with targets at 26
Short VNQ with targets at 77.44



It's a very odd time for Equities, and anyone who tells you differently simply is not paying attention.  The near-term trend arguably has pushed back to bullish after Wednesday'ssession for both the SPX and for NASDAQ in the short run, and NASDAQ 100 looks poised to claw back to new highs. The DJIA and NY Composite, meanwhile, continue to struggle with the DJIA lower by nearly 2% over the last five trading days, and the Dow has now fallen now for seven straight sessions. Consider that the SPX pulled back 40 points from 6/12 into Tuesday 6/19's lows, yet managed to close up off its lows on Thursday,Friday, and Monday to tune of 18, 16 and 20 points

However, most continue to want to watch the NASDAQ and the Tech move for being "the market", and are concentrating on the parabolic movement in NFLX, AMZN and FB back to new high territory.  FB alone has managed a greater than 35% gain in less than three months, pushing back to new highs above $202 as of Wednesday's close.  Yet stocks like BA have lost nearly 30 points since 6/11, or roughly 7% in value.  A tale of two markets without a doubt, yet its been Retail this time around that has joined Technology while many other sectors simply wallow in consolidation.   

The following seem important in suggesting that at least a bit more strength might happen:
1) SPX held where it needed to on Tuesday's lows above 2745 to hold the uptrend from early May
2) Ability of both SPX and NASDAQ to push above channel resistance that had been broken, while NASDAQ Comp moved back to new highs, and is early Demark wise for daily exhaustion
3) NASDAQ 100 also successfully reclaimed early June lows and is 2-3 days from Exhaustion, but this requires a move back to new highs.  The pattern here isn't all that negative in the short run
4) Consumer Discretionary just pushed back to new all-time highs, while Healthcare looked to have bottomed where it needed to and made a healthy move off the lows from Tuesday.
5) Small cap IWM furthered its gains at new 52-week highs, while MID, the S&P Mid-cap index is within 2 points

These last five steps aren't to imply that all is fine, and Equities can move back to new highs.   There remain problems with regards to sentiment and non-participation, but the key point to this week's market is that indices have tried to pullback, but the selloff was less than enthusiastic or impressive and similar to the lack of upward thrust seen in many sectors on rallies, the opposite is also true.  Technology truly needs to peak out to have real conviction in a short-term top.  If Tech moves back to new highs while other sectors stabilize, this is more of a recipe for a slow grind, than anything else, and rallies still should prove to be selling opportunities into early to mid-July.  For now, enough has happened over the last couple days to think a selloff might not be imminent given lack of followthrough.  
  

Additional charts and thoughts below.

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SPX for now, has managed to hold where it needed to and moved up meaningfully off early lows from Monday as the four out of five day decline happened in a very strange fashion.  Prices closed well off the lows last Thursday, Friday and Monday while moving up sufficiently Wednesday to give more conviction of Tuesday 6/19 as putting in lows in place.  Tech resilience combined with Discretionary and Healthcare strength seem to suggest a half-baked rally attempt now, even while industrials and Financials are weak.  While being cognizant of the degree to which sentiment remains bullish and any subsequent move back above June highs would likely occur on far less breadth and momentum, for now, declines have proven disappointing as markets enter the Summer season.  Technically it's wise to start looking for longs and keep tight stops on Shorts with expectations that July might prove similar to June, May, April and March, rising into mid-month before peaking.  

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Big-Cap Technology's move back to new highs along with Biotech strength has helped the NASDAQ 100 push back higher, and until the NASDAQ takes the lead in trying to turn lower, shorting this will prove difficult and could allow for a move up to 7400.  Pullbacks to break the uptrend from early May would put a bearish stance back on the front burner, but for now, theres enough price strength to simply cut shorts and stand aside and let this move run its course.  It goes without saying that 25-35% rallies within three months time in NFLX, AMZN, FB, GOOGL have made these stocks unattractive to chase at new highs.  All are near-term overbought and appear like poor risk/rewards on a 3-4 month time frame given their rallies from May.   However, some of the laggard Biotech stocks have begun to come to life, and these present a much different risk/reward profile and are areas to look for gains in the days ahead, vs reaching for Technology.  

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 XBI, the ETF for Biotechnology, broke out two days ago and still looks to have upside in the short run, as the entire Healthcare space looks to have bottomed into early this past week where it needed to.  XLV has rebounded and Biotech in particular has made an excellent technical move which keeps this sector quite healthy near-term.   While overbought and signs of counter-trend exhaustion are close to forming, it will require another 2-3 days of gains before it looks right to sell into this move, even for trading purposes.  Therefore, it's still right to expect XBI to reach 105 before stalling and any near-term pullback would be used to buy dips.  Stocks of interest in this sector are ALXN, VRTX, BIIB which have all tried to claw back in recent sessions.